Broadcom NetLogic Sparks Chip Rally

NEW YORK, ( TheStreet) -- Broadcom's ( BRCM) $3.7 billion deal for NetLogic ( NETL) puts the street on alert from other takeover candidates in the chip sector.

Broadcom said Monday that it will pay $50 in cash for each share of communications chip specialist NetLogic, and expects the deal to close in the first half of next year and be a dime accretive to adjusted profit next year.

The fact that Broadcom was willing to pay an extra $1.7 billion, or more than a 50% premium over NetLogic's market cap level on Friday, suggest there's a high value in the market for the right tech shops.

On a hunch that other deals may follow, investors bid up chip shops including Cavium ( CAVM), Micron ( MU), Avago ( AVGO), Altera ( ALTR) and PMCSierra ( PMCS).

NetLogic develops multi-core processors for so-called ultra-low power components for communications gear like switches and routers in networks. For Broadcom, NetLogic adds another product line in an expanding offering in communications chips.

Just as the enterprise gear shops like Dell ( DELL) and HP ( HPQ) have pushed to be one-stop shops for IT equipment, Broadcom, Intel ( INTC) and Texas Instruments ( TXN) have followed the trend to consolidate more products under a bigger umbrella.

"This deal would seem to put NetLogic's competitor Cavium in play, and you could argue that TI and Intel would be a strategic fit," says Rodman Renshaw analyst Ashok Kumar.

NetLogic shares surged 50% to $47.90; Cavium was up 7% to $33.2; Micron was up 4% to $6.63; and PMCSierra was up 2% to $6.11 in early trading Monday.

--Written by Scott Moritz in New York.

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